Recently, I was reflecting on the emerging company niche as seen through the eyes of the business world. I noticed a tremendous amount of effort is focused on distinguishing companies into different categories: startups, early stage, growth, emerging, enterprise, small, mid-sized, and/or enterprise.
There are obvious differences for any emerging business in all of these categories from a financial and marketing perspective.
Financial Perspective
There are extremely different ways to secure capital. For example, a publicly traded company vs. a company just getting its feet off the ground. Each approach must be handled differently to be successful.
Marketing Perspective
Similarly, in marketing the company, a smaller company is not going to have the ability to market using multiple channel strategies like larger companies do. Furthermore, many times those small companies may not even have the capital to build a captive sales force like larger companies are able.
In my legal career, I have represented everything from start-ups to established businesses. Of course, there are differences in the legal strategies I employ for large vs. small companies. For example, large publicly traded companies need to file a plethora of securities regulatory materials that small privately held companies do not have to. Related to this difference, large companies need to have more complex operating structures and accompanying employment policies in procedures.
Even with these differences, there are many fundamental similarities between businesses of all sizes that require the same level of legal sophistication in their governance and legal structure. In fact, because the consequences are existential and the runway is far less, smaller companies arguably have the need for more exacting legal services (there are numerous examples of Fortune 500 companies taking the wrong strategy and surviving just fine).
Some examples of an emerging business needs include:
Operating Agreements and/or Corporate Documents:
Have you ever heard of a founder, a partner, and/or a seed investor getting “screwed”? This usually happens when a term sheet and/or corresponding document includes relatively complex terms. Complex terms have serious ramifications for the future of the current business owner. Including dilution protection (where new investors’ percentages of equity are fixed or dilution limited) and preferred liquidation preference. Also, drag-along rights (the ability for certain investors to force the sale of the company without the consent of other investors). Finally, governance (where the ability to run the company is influenced heavily by the new investor). Investment and/or partnerships can get very sophisticated very quickly and form the foundation of the business. Terms always need to be expertly negotiated, drafted, and supported. Otherwise, there will be very little to address later (e.g., an exit) because the foundation is so weak/vulnerable.
Intellectual Property:
I just was visiting a brewery that I would guess expended over $2 million in equipment and infrastructure. However, the brewery did nothing to protect its brand name or design. If that name or the design is then taken by another entity, their investment will be seriously compromised. Furthermore, a great deal of legal fees are expended just to get them to a place where they were before.
I then met with another company that had just written up a feature in the New York Times. A problem was that they tried to trademark their brand name without counsel and were DENIED. Accordingly, all the good publicity of that brand is at risk because the business owners may not be able to use the brand name.
In summary, in intellectual property protection especially, the name of the game is sophisticated analysis, drafting, and pleading/registration from inception instead of a defensive strategy later in the growth of the company.
I founded EmergeCounsel, attempting to balance the need for sophisticated legal representation and understanding the need for businesses to spend as little expense as possible. In other words, businesses should be paid appropriately for expertise and competency. Companies of all sizes benefit equally from sophisticated legal planning at a reasonable price.